cash inflow

(noun)

Cash that is received by the investor. For example, dividends paid on a stock owned by the investor is a cash inflow.

Related Terms

Examples of cash inflow in the following topics:

  • Defining NPV

    • Net Present Value (NPV) is the sum of the present values of the cash inflows and outflows.
    • Every investment includes cash outflows and cash inflows.
    • In order to see whether the cash outflows are less than the cash inflows (i.e., the investment earns a positive return), the investor aggregates the cash flows.
    • Thus, in order to sum the cash inflows and outflows, each cash flow must be discounted to a common point in time.
    • NPV = 0: The PV of the inflows is equal to the PV of the outflows.

  • Calculating the Payback Period

    • To calculate a more exact payback period: Payback Period = Amount to be initially invested / Estimated Annual Net Cash Inflow.
    • Start by calculating Net Cash Flow for each year: Net Cash Flow Year 1 = Cash Inflow Year 1 - Cash Outflow Year 1.
    • Then Cumulative Cash Flow = (Net Cash Flow Year 1 + Net Cash Flow Year 2 + Net Cash Flow Year 3 ... etc.)
    • Payback Period = Amount to be initially invested / Estimated Annual Net Cash Inflow.
    • They discount the cash inflows of the project by a chosen discount rate (cost of capital), and then follow usual steps of calculating the payback period.

  • Reporting Investing Activities

    • Cash flows due to changes in non-current assets or returns on investments must be determined to be inflows or outflows in order to be reported properly.
    • When reporting investing activities, it is important to be able to decipher a cash inflow from a cash outflow.
    • Examples of transactions involving cash inflows include:
    • In each of these cases, the account appropriate to the specific investment would be debited, and the Cash account would be credited, due to the decrease in cash.
    • The sale of a factory would be an example of a cash inflow from investment.

  • Cash Flow from Investing

    • One of the components of the cash flow statement is the cash flow from investing .
    • However, this cash flow is not representative of an investing activity on the part of the company.
    • Cash outflow from the purchase of an asset (land, building, equipment, etc.).
    • Cash inflow resulting dividends paid on stock owned in another company.
    • It is important to remember that, as with all cash flows, an investing activity only appears on the cash flow statement if there is an immediate exchange of cash.

  • NPV Profiles

    • The NPV calculation involves discounting all cash flows to the present based on an assumed discount rate.
    • The NPV Profile assumes that all cash flows are discounted at the same rate.
    • While this is not necessarily true for all investments, it can happen because outflows generally occur before the inflows.
    • When the value of the outflows is greater than the inflows, the NPV is negative.
    • And it is the discount rate at which the value of the cash inflows equals the value of the cash outflows.

  • Cash Flow from Operations

    • The operating cash flows component of the cash flow statement refers to all cash flows that have to do with the actual operations of the business.
    • The direct method shows the cash inflows and outflows affecting all current asset and liability accounts, which largely make up most of the current operations of the entity.
    • The most noticeable cash inflow is cash paid by customers.
    • It is only when the company collects cash from customers that it has a cash flow.
    • Operating cash flows, like financing and investing cash flows, are only accrued when cash actually changes hands, not when the deal is made.

  • Components of the Statement of Cash Flows

    • There can also be a disclosure of non-cash activities.
    • Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.
    • For businesses that use cash basis accounting, the cash flow statement and income statement provide the same information, since cash inflows are considered income and cash outflows consist of expense payments or other types of payments (i.e. asset purchases).
    • Financing activities include the inflow of cash from investors, such as banks and shareholders and the outflow of cash to shareholders as dividends as the company generates income.
    • Statement of cash flows includes cash flows from operating, financing and investing activities.

  • The Forecast Budget

    • In order to determine the optical cash balance for a company, cash flows are estimated and a forecast is prepared.
    • If a business hold too much cash, it loses the opportunity to earn a return on idle cash.
    • The optimal cash balance is determined by looking at the four reasons for holding cash:
    • One of the best ways to determine the optimal cash balance is to fully understand cash flow patterns.
    • A typical cash flow forecast will include: cash on hand, expected receipts, and expected disbursements.

  • Limitations of the Statement of Cash Flows

    • The cash flow statement includes only inflows and outflows of cash and cash equivalents; it excludes transactions that do not directly affect cash receipts and payments.
    • As a cash flow statement is based on the cash basis of accounting, it ignores the basic accounting concept of accrual.
    • Cash flow statements are not suitable for judging the profitability of a firm, as non-cash charges are ignored while calculating cash flows from operating activities.
    • The statement of cash flows includes cash flows from operating, investing and financing activities.
    • Identify the factors that make the statement of cash flows of limited use

  • Reporting Financing Activities

    • Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income.
    • Receiving the money is a positive cash flow because cash is flowing into the company, while each individual payment is a negative cash flow.
    • Non-cash financing activities may also be included on the cash flow statement as footnotes.
    • Exchanging non-cash assets or liabilities for other non-cash assets or liabilities; and
    • Or as inflows, the receipt of payments for such financing vehicles by outside investors.